Sunday, May 27, 2012

Eugenio Scalfari has an article today in La Repubblica about the “long crisis of the Church.” The article is triggered by the current crisis in the Vatican due to the alleged activities of a butler.
But Scalfari goes back to the series of popes in the XX century to describe how the attempts of Pope John XXIII to modernize the Church were basically undermined by all his successors. The question to me is not whether modernization in the Church will ever succeed, but whether it is possible at all. Here we are talking about a creed that after all the scientific discoveries of the past four centuries keeps promoting a kind of knowledge that is at odds with all we know, keeps promoting a powerful organization were women are excluded from power, and is based on the dogmas expressed by an elite of co-opted, oddly disguised and unelected priests. Today that the current financial and economic crisis in Catholic Europe is undermining so many institutions (see the monarchy in Spain), one wonders how the Catholic Church will react to keep its role. A modern Catholic Church should probably stop being a Church as we know it, but for that it should stop having the (political and fiscal) privileges it still has in some countries. One wonders how the West can fight Islamic fundamentalism without fighting the Catholic type with the same energy.

Wednesday, May 16, 2012

At the Conference on European Energy Markets in Florence last week, John J. García Rendón and myself were awarded the Loyola de Palacio Best Paper Prize. Here you can see a picture and you can read the paper in my web page. In case you are an insider in Spanish politics you may be wondering what sort of companies do I keep lately. In fact, the prize has this name because it is awarded by the Loyola de Palacio Chair, that belongs to the Florence School of Regulation, and which is named after the late Spanish (conservative) politician and former EU Commissioner. You may also be wondering which jury did I manage to bribe, and from the calibre of the members you can infer that we were surprisingly awarded the prize with no side deals. The members of the jury included David Newbery from Cambridge University and Frank Wolak from Stanford.

Tuesday, May 8, 2012

François Hollande will be the next president of France. He is not going to have an easy job, and probably will not be able to set aside all austerity. But his victory is more than welcome at least for three reasons:
-His personality is the opposite to Sarkozy. Hiperactive, histrionic leaders à la Berlusconi, Piñera o Sarkozy tend to transform politics into a theater. A more sober, modest leadership will help return democracy to a human scale.
-He will provide a better counterbalance to Merkel's German conservative supporters. It is not that Sarkozy shared all the views of Angela Merkel, but he lacked conviction and a support base to defend a view of Europe centered on federalism and a more cooperative economic policy, with a political and fiscal union that accompanies monetary union.
-A radically democratic social-democracy is making progress. Not only social-democratic policies are again supported by a big electorate (and a number of high calibre economists), but here we are talking about a leader that won a fully open primary election (against the leader of the party, Martine Aubry) and that next won two rounds of a presidential election.
Thank you, French electorate.

Thursday, May 3, 2012

I have been working on the review of 18 empirical papers on political connections for my research with Pau Castells on this topic in Spain. Previous research either ignored or drammatically underestimated the extent of political connections by large firms in Spain.A perfect comparison of our findings to those for other countries is impossible because no author has used exactly the same definition of political connections. However, keeping in mind the differences in definitions and sample bases, we cautiously claim that the extent of political connections in Spain according to our data (50 out of 69 firms, i.e. 72%, are politically connected) is at the higher end of the presence of political agents in boards of directors. Actually, the percentage is close to the percentage of politically connected privatized firms in developing countries.-As opposed to most papers (analyzing the US, Germany and several developing countries as well as international cross-country evidence), but similarly to evidence for France, we find a negative correlation between political connections and corporate performance, although in Spain the connections cannot be attributed to an elite of highly trained technocrats as in France. Possible (not necessarily alternative) interpretations of why connections in Spain have a negative impact on performance (going against the findings of most, but not all, of the literature in many other countries and cross country evidence):-Agency explanation and weak corporate governance. This is consistent with the view that many large Spanish firms were state-owned firms that were privatized with a dispersed shareholding that were thought to need protection from takeovers and which the government still tried to control to some extent after public ownership. This is consistent with previous work of mine on Telefonica and Spanish firms in the energy sector.-Political “contributions” by firms as consumption as opposed to investment, as argued by those who think there is too little, not too much, political investment by firms relative to the stakes of policies for them.-Low corruption or good institutions reducing the value of connections.-Politicians able to redirect the objectives of firms toward the common good and away from profit maximization. However, the few papers that analyze the social costs of political connections show that there are high net social costs. This suggests that the diversion of objectives is not towards the common good but towards other objectives held by connected politicians.-In the bargain by which firms relinquish a portion of control rights in exchange for subsidies and protection, politicians have more bargaining power (but this explains a zero correlation between firm profits and connections, not a negative correlation, unless there is some sort of “winner’s curse”).-Reverse causality: firms with bad performance recruiting politicians to obtain protecting policies.-A behavioral explanation: firms recruit politicians because they are well known (availability bias) and are thought to be able (after analyzing their political career) to stir circumstances in the direction of the firm’s objective (attribution bias).We’ll keep working.